Jet Airways reports one of the best ever quarterly profits

Jet Airways, the largest Indian Full Service Carrier by market share announced its Q1-FY2016 results recently. The airline which is listed in India and has a 24% stake by Etihad Airways PJSC reported a net profit of INR 221.7 Cr compared to a loss of INR 217.65 Cr in the same quarter last year.

The operating profit stood at INR 162.41 Cr compared to a loss of INR 117.48 Cr in the same quarter last year.

The profits have come on the back of 20% lower fuel expense even when the departures increased by 16.5% for the same quarter last year and block hours increased by 16.3%.

The airline has given out far lesser details in its investor presentation and press release as compared to all the previous years. Information related to RASK, CASK and RPKM which was a standard feature do not find any mention this time around.

After many quarters, the airline has added more capacity than the industry average and shown higher growth in passengers carried than the industry average. The higher capacity without net addition of aircraft is mainly due to having all narrow body aircraft in operation and increasing utilization significantly.

The airline has earned INR 207.22 Cr by means of leasing of aircraft and engine. This income is marginally higher than same quarter last year but lower than Q4-FY15. The airline in its investors call had said that it had leased out 10 aircraft, 6 B77Ws to equity partner Etihad Airways and 4 A330-200s to Turkish.

The airline has also made a provision of INR 175 Cr for penalties towards delayed deposit of Tax Deducted at Source (TDS) indicating that there was a delay from the airlines side.

There is a threefold increase in other income compared to same quarter last year. The airline earned INR 30.5 Cr from Sale and lease back of engines. This income also includes INR 84.14 Cr earning which has been accounted in this quarter for the slump sale of Jet Privilege Frequent Flier Program which was sold in April 2014. The earning is lower than last quarter by 8%. The company is yet to account for INR 878 Cr from the slump sale of Jet Privilege and does not give any roadmap on when it would be accounted for.

The profit is on account of lower fuel expenditure, increased passengers in domestic skies, stable domestic network and good feeder service to Abu Dhabi. The airline has also changed its revenue management strategies and been proactive in offering discounted tickets and announcing flash sales. With increased competition from existing and new players, the airline has been offering bonus miles and redemption at lower miles periodically.

The results come at a time when its CEO Crammer Ball has completed a little more than a year at helm after being appointed in mid-2014 after announcement of record losses. The turnaround may well be complete in 2016, a year ahead of its planned 2017 target if the fuel prices remain at current levels and rupee does not slide further to the USD.

Jetlite operations

Wholly owned subsidiary Jetlite continued to shrink further with 21.2% drop in fleet. The fleet now stands at 8 B737 series aircraft. The subsidiary saw a drop of 13.3% number of departures to 5710 departures in Q1-FY16 but an increase in utilization to 11.6 hours from 10 hours for the same period last year. This is due to re-alignment of operations with more long distance flights.

However Jetlite was able to breakeven in Q1-FY16.

Key Operational Metrics

21% increase in passenger’s carrier over the same period last year.

5% increase in aircraft utilization

51% increase in code share traffic

3% growth in capacity

4% growth in traffic carrier

5% increase in departures

9% increase in ASKMs

20% lower fuel expenses

Positives

Increase in utilization

Narrowbody at 12hrs +

Widebody at 14hrs +

Above average On Time Performance

Consistent load factors on domestic sectors

Concerns

48% increase in Selling & Distribution costs, which now stands at INR 606 Cr as compared to INR 409 Cr in corresponding quarter last year

With over 70% of its debt US denominated, the falling rupee could put pressure on the airline and snatch away the benefit of cheaper oil

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